July 18 (Bloomberg) -- Trying to find the boom in U.S.
coal? Stop in the Gillette Brewing Company in Wyoming, which 38-year-old Tom Gorton opened using some of the $70,000 a year he
earns mining coal.

“Things were iffy there for a little bit, but it’s picking
up now,” Gorton said at his brewery in the center of town,
where customers wash down brie baked in a wood-fired oven with
gluten-free blue agave ale. “When people have a little extra
money, that changes things.”

In the coal region of eastern Kentucky, about 1,300 miles
away, extra money is hard to come by. Brandon Farley lost his
job there when the James River Coal Co. mine closed. Months of
looking turned up only one job lead: a minimum wage opportunity
at the local Pizza Hut.

The experience of these two mining communities reflect the
conflicting views of coal itself. Environmentalists see signs of
its demise in shrinking production and growing concerns over
global warming. Boosters point to a surge in demand by
developing countries hungry for cheap and plentiful energy.
Germany and Japan, too, are burning more coal as they reconsider
the risks of atomic power.

Boom, Bust

Evidence is similarly contradictory in towns across the
U.S., where the changing fortunes of coal can swing a community
from boom to bust and back.

“It depends on where you are standing as to what is going
on,” Jeff Archibald, a specialist on coal at the consulting
firm ICF International, said in an interview. In Wyoming,
“production is going to come back to the highs we saw a few
years ago,” while in central Appalachia “coal is really
dropping, and we expect that to continue.”

The reason: Kentucky’s coal costs three times as much to
mine as Wyoming’s. That is crucial as coal finds itself
competing with supplies of low-cost natural gas unlocked by
advances in drilling known as hydraulic fracturing, or fracking.

In the wide, vast plains of Wyoming’s Powder River Basin,
where coal can be scooped out and piled high onto railcars
headed for Texas and Midwest power plants, production is on a
modest upswing.

Frozen Yogurt

That’s sparked a boom in the town of Gillette, where the
local unemployment rate is 2.9 percent, less than half the
nation’s 6.1 percent, and the median family income is $77,000,
more than 40 percent higher than then national average. Within
the past year four new frozen yogurt shops opened, along with
the $5.5 million Jordan’s Western Dining steakhouse that has the
cattle brand of former vice president and Wyoming Republican
congressman Dick Cheney seared on a wood beam near the bar.

The scene is very different along Kentucky’s jagged eastern
edge. The cheapest, easiest coal to mine was carved out decades
ago, and now mining companies are shedding workers and seeking
bankruptcy protection. The unemployment rate is 14.8 percent and
doctors are drug-testing their own patients to make sure they
are taking -- rather than hawking -- pain medication.

“The plug has been pulled on our economy,” said C.V.
Bennett, who is the last local owner of coal mines. “I feel for
the people because they really don’t have any direction, and I
can’t give them direction.”

“It’s like you’re dead and don’t know it,” he added.

Vital Signs

The vital signs for coal are conflicting.

It is the nation’s No. 1 source of fuel for power and was
burned to generate 39 percent of its electricity last year --
though that is down from almost half in 2007. Production from
the nation’s mines last year fell to 984 million short tons, the
lowest in two decades. The output is likely to dip for the next
few years, and then increase slowly over the subsequent two
decades, according to projections by the U.S. Energy Information
Administration.

Industrywide employment in the U.S. has fallen to about
122,000 from 415,000 in 1950, before mining became mechanized,
according to the National Mining Association.

Worldwide, coal is the fastest-growing major energy source,
projected to rise 2.3 percent a year through 2018, and poised to
dethrone crude oil as the largest source by 2020, the
International Energy Agency said in December.

In recent months, Japan’s cabinet approved a new energy
plan that designates coal as a long-term source of electricity.
Coal consumption has reached record levels as nuclear reactors
have been idled for safety checks since a tsunami struck and
disabled a plant in Fukushima in 2011, spreading radiation.

Merkel, Fukushima

Germany has also boosted its use of coal since Chancellor
Angela Merkel decided after the Fukushima disaster to shutter
all 17 of the nation’s nuclear plants by 2022. Coal’s share of
electricity production in the nation rose to 45 percent last
year, the highest level since 2007.

According to the World Resources Institute in Washington,
about 1,200 coal-fired plants are being planned, with more than
three-quarters of the units in India and China alone.

That overseas demand has some U.S. producers hopeful that a
boost in exports will compensate for declines in this country.

Wyoming, in particular, hopes to boost exports. Proposals
to build terminals at ports in Washington and Oregon, however,
have been stymied by environmental objections. And China has
announced a goal of reducing its dependence on coal for power
generation to less than 65 percent by 2017.

Short term, companies such as Peabody Energy Corp. predict
that coal exports will be flat or fall, as global prices are
depressed.

Polar Vortex

There’s no mystery as to why coal has survived efforts to
kill it off, or why it’s under pressure: it’s relatively cheap
and easy to mine, transport, store and burn. This year, as the
polar vortex threw much of the U.S. into a record deep freeze in
January, blackouts were prevented in part by power companies
firing up old coal plants.

However, underground mining is dangerous work; those who
avoid the occasional roof fall or explosion face risks of black
lung or silicosis. Surface mining can destroy mountains and
pollute streams.

Coal-fired power plants are responsible for almost two
thirds of the U.S. emissions of sulfur dioxide, which causes
acid rain. And then there’s the existential risk of climate
change: Coal emits twice the carbon dioxide as natural gas when
burned to generate electricity, making it one of the biggest
sources of greenhouse-gas emissions.

“Cradle to grave, there is no energy source on the planet
worse than coal,” said Patrick Parenteau, a professor of
environmental law at Vermont Law School.

Government Regulations

As a result, government rules have piled up in the past 30
years, as regulators moved to make mining safer and reduce air
and water pollution. Industry groups and Republican lawmakers
complain that under President Barack Obama a panoply of
environmental rules have amounted to a “War on Coal” that is
making it impossible for the industry to survive.

That “war” got a recent boost from federal courts, which
upheld two Environmental Protection Agency rules mandating that
coal plants install scrubbers to cut their mercury, acid gases
and sulfur dioxide emissions. And the EPA proposed in June its
first rules to limit greenhouse gases from power plants, ones
that could further damp coal use in the U.S.

The EPA rules weren’t always a bad thing for either
Kentucky or Wyoming. Because of quirks of geology both places
have low-sulfur coal, and so when the federal government moved
to cut acid rain with the Clean Air Act amendments of 1990, coal
from each place was in high demand.

Wyoming Production

Wyoming coal production doubled from 1990 until 2008, to
more than 400 million tons. Nine of the 10 largest mines in the
country are now in Wyoming; the other is neighboring Montana.

“Everybody wanted to get low-sulfur coal,” Rob
Livingston, who teaches mining technology at Gillette College in
Wyoming, said in an interview. Oil companies with mineral rights
in the Powder River Basin “put up their hands and said, ‘We got
it here.’”

Because the coal is close to the surface, the mines look
more like super-sized quarries, with mechanized shovels filling
trucks with 400 tons of coal a shot, which then gets driven to
conveyor belts that load up trains right from the mine and take
the coal to plants in the South or Midwest. Instead of miners
chiseling coal from underground caverns, the Wyoming operations
are about using massive equipment to make production as quick
and efficient as possible.

Cheapest Coal

As a result, at the mine gate, coal from the Powder River
Basin is the cheapest in the U.S., less than a third the cost of
Appalachian coal, according to the Energy Information
Administration. The largest component is the cost of shipping
Wyoming coal by rail. It was only the deregulation of railroad
rates in the 1970s that opened the resources for commercial
sale, according to Richard Schmalensee of the Massachusetts
Institute of Technology.

Now producers say railroad congestion is a barrier to
growth.

“The upside for producers will be limited by rail,” said
Ted O’Brien, president of Doyle Trading Consultants, a Colorado-based coal-research company. Still, “coal is going to be a very
big part of our grid for a long time.”

In 2012, prices for Powder River Basin coal fell to less
than $7 a ton; it’s now at almost $12. What those prices will be
long term will determine how much coal will be pulled from
Wyoming mines, and explains in part why some companies are so
anxious for exports.

Export Opportunity

“We have a good business that’s making money through a
horrible down cycle,” Colin Marshall, the chief executive of
Cloud Peak Energy Inc., which has three mines in the Powder
River Basin, including one that is in Montana, said in an
interview. “Exports are basically the significant growth
opportunity on top of that.”

Residents of Gillette, a town about 310 miles (500
kilometers) north of Denver, say they’re seeing more positive
signs.

“A lot of the mines are hiring now,” said Joel
Christophersen, general manager of L&H Industrial, a mining
contractor based in Gillette. “Things have stabilized, and I
think the future looks good.”

In fact, the town of Gillette is struggling with the issues
of growth, not decline. While the county is building a new skate
park, the city is debating what mix of soccer, football,
baseball fields should be part of a new park. And with the
unemployment rate so low -- and $70,000 a year jobs available in
the mines -- other business owners say they have a hard time
holding onto to workers.

Shedding Workers

“There is a decent amount of turnover, because there are
some high-paying jobs available,” said Karl DeCock, a local
architect. “The mines are where the money is at.”

Gorton and DeCock teamed up with four other co-owners to
overhaul the town’s historic post office building along Main
Street and turn it into Gillette’s first brewpub.

Gorton, a mechanic at a strip mine 12 miles north of town,
had been an avid homebrewer and is now one of the year-old bar’s
two brewers. In addition to beer, the bar offers weekly improv,
trivia nights and live music. And it has competition. Within
weeks of its first day, Prairie Fire Brewery opened blocks away.

None of those signs of growth are evident in eastern
Kentucky.

In Harlan County, the setting of epic battles between mine
owners and union organizers in the last century, the food bank
is short of donations and a downtown partnership is taking
bids not for new tenants but for companies that can tear down
vacant storefronts.

Distressed Count

Of the 87 licensed mines in the county, just 27 are active,
according to the U.S. Mine Safety and Health Administration.
Harlan produced 4.6 million tons of coal last year, the lowest
total since 1920. The county shed more than half its population
in the past six decades, and locals say one of the only booming
local businesses is renting U-Haul trucks for those fleeing.

“We’re going to have to rely on something else,” said
Harry Gibson, a former miner who now runs a local contracting
company. “But we’ve gotten so dependent on coal, it’s like
we’re on drugs.”

Even before this latest downturn Harlan was categorized as
a distressed county by the U.S. Census Bureau, with a median
income of $26,758. Subtract the Social Security payments,
government disability checks and unemployment insurance and that
total drops to $15,831, about half the national average.

Its household income is about a third that of Campbell
County, Wyoming, where Gillette is located.

Left Town

After months of looking for work, Brandon Farley did what
thousands of Harlan residents have done before him: packed up
his family and left. He found a job working at a coal mine in
western Kentucky, where he says production is more stable.

“Harlan will be a ghost town,” Farley said. “There is
nothing there that will let you match what you can get from
coal.”

Coal’s pre-eminent place in eastern Kentucky began more
than a century ago, as prospectors and entrepreneurs searched
for fuel to support the rapid spread of electricity and
manufacturing of steel and automobiles. Coal brought
electricity, roads, railroads and immigrants to what had been an
isolated area known for its feuds, moonshine and mournful music.
Before coal, residents bartered ginseng, acorn-fattened hogs and
furs for salt, their major import, according to historian John
Hevener.

Black Mountain

In the early 20th century surveyors identified the coal
deposits under Black Mountain, Kentucky’s highest peak,
prompting a “coal rush” to the area. Wide, long seams allowed
miners to tunnel miles underground to tap the rich deposits.

Ford Motor Co., U.S. Steel Corp. and International
Harvester Co. each established so-called captive mines in the
area, guaranteeing supplies of coal for the steel making and
electricity they needed for their factories.

Union battles flared in the 1930s -- and came back in the
1970s to be captured in the Academy Award-winning documentary
film, “Harlan County U.S.A.”

Harlan’s record annual production was in 1942, when 15.2
million tons were mined, according to state data. As machinery
made mining less labor intensive, mining jobs have been on the
decline. In 1940, the mines had 16,403 employees. Thirty years
later there were just 2,433 miners. Last year it was 932 -- down
35 percent from 2012 -- and none in a union mine.

Declining Resource

A century of mining has left the choicest minerals already
extracted, meaning what’s left takes more time and effort to
produce.

“Coal is not going away in eastern Kentucky, but it’s
becoming more difficult and costly to produce,” said Cortland
Eble, a geologist at the Kentucky Geological Survey. “What
we’re seeing is a decline in available resources.”

With coal collapsing, local miners and political leaders
boarded an industry-sponsored bus to Washington last year,
announcing their status as a “Friend of Coal” and carrying
signs that included, “Save America, Impeach Obama.” Some signs
showed a cartoon boy in a miner’s hard hat urinating on the word
“OBAMA.”

State and federal officials are trying to craft viable
alternatives for the region. Democratic Governor Steve Beshear
and Republican Representative Hal Rogers hosted a summit on Dec.
9 on reshaping the Appalachian region.

“People here have been jerked around, kicked around so
much that they’ve lost hope,” said Carl Shoupe, a former miner
and union organizer. “We have to do something else.”

‘Ground Zero’

Shoupe’s warning is acute for Kentucky. The question for
Wyoming is how long companies and residents can avoid it.

Certainly, the coal industry sees the Appalachian travails
as a warning signal. “Eastern Kentucky is ground zero for what
the coal industry is going through in this country,” said Bill
Bissett, the executive director of the Kentucky Coal
Association.

Marshall of Cloud Peak says U.S. demand will be flat over
the next years or decades, so low-cost producers from the Powder
River Basin can still survive. “We have a sound domestic base,
and production can go up as prices go up,” he said.

But a growing chorus of environmental advocates are looking
at the proliferation of cheap solar and wind energy, and saying
coal’s more recent woes are the beginning of the end. The U.S.
passed its peak coal production in 2008, and mining will become
increasingly expensive, according to a report by Clean Energy
Action of Boulder, Colorado.

“As they extract more and more of the coal, the cost of
producing it rises,” Zane Selvans, author of the report, said
in an interview. What Kentucky is experiencing today, many mines
in Wyoming may face in the next seven to 20 years, he predicts.
“The margins in the Powder River Basin are still positive,
unlike Appalachia; but they’re thinning.”